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HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION

FINANCIAL AND COMPLIANCE REPORTS

JUNE 30, 2016

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TABLE OF CONTENTS

INTRODUCTORY SECTION

Directory of principal officials i

FINANCIAL SECTION INDEPENDENT AUDITOR’S REPORT 1 – 3 Management’s Discussion and Analysis 4 – 9 Financial Statements

Statement of Net Position 10

Statement of Activities 11 Balance Sheet - Governmental Funds and Reconciliation of the Balance Sheet of the Governmental Funds to the Statement of Net Position 12

Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds and reconciliation of the statement of revenues, expenditures and change in fund balances - governmental funds to the statement of activities 13 Notes to Financial Statements 14 – 40

Required Supplementary Information Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General Fund 41

Supplementary Information 42

Schedule of General and Administrative Expenses

COMPLIANCE SECTION INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 43 – 44

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DIRECTORY OF PRINCIPAL OFFICIALS

Voting Members

William D. Sessoms, Jr., Chair, City of Virginia Beach Michael J. Hipple, Vice-Chair, James City County

Alan P. Krasnoff, City of Chesapeake Frank Rabil, City of Franklin

Donnie Tuck, City of Hampton Rex W. Alphin, Isle of Wight County

McKinley Price, City of Newport News Kenneth C. Alexander, City of Norfolk W. Eugene Hunt, Jr., City of Poquoson Kenneth I. Wright, City of Portsmouth Barry T. Porter, Southampton County

Linda T. Johnson, City of Suffolk Paul Freiling, City of Williamsburg Thomas G. Shepperd, York County

Senator John A. Cosgrove, Virginia General Assembly Senator Frank W. Wagner, Virginia General Assembly

Delegate Chris Jones, Virginia General Assembly Delegate Christopher P. Stolle, Virginia General Assembly

Delegate David E. Yancey, Virginia General Assembly

Ex-Officio Members

Charles Kilpatrick, Virginia Department of Transportation John F. Malbon, Commonwealth Transportation Board

Jennifer Mitchell, Virginia Department of Rail and Public Transportation John F. Reinhart, Virginia Port Authority

Commission Staff

Kevin B. Page, Executive Director Jennifer C. Coleman, Executive Assistant

Support Staff

Nancy K. Collins, Chief Financial Officer

Danetta M. Jankosky, Accounting Manager

FINANCIAL SECTION

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INDEPENDENT AUDITOR’S REPORT To the Honorable Commission Board Members Hampton Roads Transportation Accountability Commission Chesapeake, Virginia Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and each major fund of the Hampton Roads Transportation Accountability Commission (Commission), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Commission’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Specifications for Audits of Authorities, Boards, and Commissions issued by the Auditor of Public Accounts of the Commonwealth of Virginia. Those standards and specifications require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Commission’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Commission’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

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Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Commission, as of June 30, 2016, and the respective changes in financial position, in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis and Budgetary Comparison Information on pages 4-9 and page 41, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods or preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Commission’s basic financial statements. The accompanying schedules listed in the table of contents as supplementary information and introductory section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section, as listed in the table of contents, has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

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Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 7, 2016 on our consideration of the Commission’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Commission’s internal control over financial reporting and compliance. Harrisonburg, Virginia September 7, 2016

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HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION MANAGEMENT’S DISCUSSION AND ANALYSIS

This discussion and analysis of Hampton Roads Transportation Accountability Commission’s (the Commission) financial performance provides an overview of the Commission’s financial activities for the fiscal year ended June 30, 2016. The Commission is a political subdivision of the Commonwealth of Virginia, created April 3, 2014 by the Hampton Roads Transportation Accountability Commission Act, Title 15.2, of the Code of Virginia (HB1253 & SB513) and became effective July 1, 2014. The Commission’s primary function is determining how the Hampton Roads Transportation Fund (HRTF) (HB2313 of the 2013 Acts of Assembly) regional Sales and Use Tax and Motor Fuels Tax monies will be invested in new construction projects on new or existing highways, bridges, and tunnels in the localities comprising Planning District 23. This function includes an improvement program development with priority to those projects that are expected to provide the greatest impact on reducing congestion for the greatest number of citizens residing within Planning District 23. The Commission member jurisdictions are the counties of Isle of Wight, James City, Southampton, and York and the cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg. The Commission has 23 members as follows: the chief elected official, or their designee, of the 14 cities and counties that are members of the Commission; five members of the General Assembly (two senators and three delegates). In addition, four non-voting ex-officio members, one each from the Virginia Department of Rail and Public Transportation, the Commonwealth Transportation Board, the Virginia Department of Transportation, and the Virginia Port Authority. FINANCIAL HIGHLIGHTS Highlights for Government-wide Financial Statements The government-wide financial statements report information about the Commission’s reporting entity as a whole using the economic resources measurement focus and accrual basis of accounting. Assets and deferred outflows of resources of the Commission exceeded its liabilities for the year

ended June 30, 2016 by $438,700,940 (net position).

For the fiscal year ended June 30, 2016, regional tax revenues for the Commission’s governmental activities totaled $153.2 million. Expenses totaled $34.1 million; $33.3 million represents project funding in accordance with HB2313 and $.8 million represents reimbursement of authorized administrative costs.

Highlights for Fund Financial Statements The fund financial statements provide detailed information about the Commission’s funds using the current financial resources measurement focus and modified accrual basis of accounting. The Commission’s Special Revenue Fund, established in the prior fiscal year, reported an increase in

fund balance of $123,410,286 for a fund balance totaling $438,685,240 as of June 30, 2016.

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OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis provided here is intended to serve as an introduction to the Commission’s basic financial statements. The Commission’s basic financial statements consist of three components: government-wide financial statements, fund financial statements, and the notes to the financial statements. This report also includes required supplementary information and supplementary information intended to furnish additional detail to support the basic financial statements themselves. The financial statements presented include all of the activities which are part of the Commission reporting entity using the integrated approach as prescribed by the Governmental Accounting Standards Board (GASB). The government-wide financial statements present the financial picture of the Commission’s governmental activities from the economic resources measurement focus using the accrual basis of accounting. The fund financial statements include a separate column for each of the major governmental funds. The governmental funds are prepared using the current financial resources measurement focus and modified accrual basis of accounting. A reconciliation of the fund financial statements to the government-wide financial statements is provided to explain the differences created by the integrated approach. Government-Wide Financial Statements The government-wide financial statements consist of the Statement of Net Position and the Statement of Activities, with the governmental activities combined. The Statement of Net Position presents the assets and deferred outflows and liabilities and deferred inflows of the Commission with the difference reported as net position. The Statement of Activities shows in broad terms changes to net position during the fiscal year. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Commission is improving or declining. Net position is one way to measure financial position but the reader should also consider other indicators, such as general economic conditions. The Statement of Activities presents information indicating how the Commission’s net position changed during the fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will result in cash flows in future fiscal periods. Revenue is classified as General or Special revenues. General revenue consists of transfers of investment earnings used to cover the Commission’s administrative expenses. Special revenues include the two intergovernmental revenues: sales and use tax, and motor fuels tax collected on behalf of the Commission and remitted from the Commonwealth of Virginia. These tax receipts commenced July 1, 2013. Fund Financial Statements A fund is a grouping of related accounts used to maintain control over resources which have been segregated for specific activities or objectives. The Commission, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The Commission only reports governmental funds. The Commission does not operate proprietary funds nor does it maintain fiduciary funds at this time. The governmental funds of the Commission are divided into two funds: General Fund and Special Revenue Fund.

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Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental funds financial statements focus on near-term inflows and outflows of spendable resources as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in assessing a government’s near-term financing requirements. Because the focus of government funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental funds Balance Sheet and the governmental funds Statement of Revenues, Expenditures and Change in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Commission maintains two governmental funds: the General Fund and Special Revenue Fund. Information is presented separately in the governmental funds Balance Sheet and in the governmental funds Statement of Revenues, Expenditures and Changes in Fund Balances for each of these funds. The General Fund includes the Commission’s operating activities including the cost of the Commission’s two member staff. The Special Revenue Fund reports revenue received by the Commission and used to fund prioritized projects on new or existing highways, bridges and tunnels in the localities comprising Planning District 23. The Commission adopts an annual appropriated budget for its General Fund. An internal budgetary comparison statement is maintained for the General Fund to demonstrate compliance with this budget. Notes to the Basic Financial Statements The notes to the financial statements provide additional information essential to a full understanding of the data provided in the government-wide and fund financial statements. Required Supplementary Information The Required Supplementary Information provides additional information that is required by accounting principles generally accepted in the United States to be presented as a supplement to the basic financial statements. Supplementary Information Additional information is presented as a supplement to the basic financial statements. Although not required to be presented and not part of the basic financial statements, the schedules are included to provide additional information of interest to certain financial statement users.

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FINANCIAL ANALYSIS OF THE COMMISSION REPORTING ENTITY AS A WHOLE Statement of Net Position The following table presents a summary of the Statement of Net Position for the Commission as of June 30, 2016.

Summary of Net Position June 30, 2016

Governmental

ActivitiesAssets:

Current and other assets 471,696,669$ Deferred outflows of resources 15,700

Total assets and deferred outflows of resources 471,712,369

Liabilities:Current and other liabilities 33,011,429

Total liabilities 33,011,429

Net position:Restricted 438,685,240 Unrestricted 15,700

Total net position 438,700,940$

As noted earlier, net position may serve as a useful indicator of a government’s financial position. In the case of the Commission, assets and deferred outflows of resources exceeded liabilities by $438,700,940 at June 30, 2016. $438.7 million represents resources subject to external restriction. Current assets consist primarily of amounts due from the Commonwealth of Virginia, cash and cash equivalents, and restricted cash and cash equivalents. As of June 30, 2016, approximately $19.1 million was due from the Commonwealth of Virginia which is restricted for prioritized projects on new or existing highways, bridges, and tunnels in the localities comprising Planning District 23.

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Statement of Activities The following table presents the revenues, expenses and change in net position of the Commission for the fiscal year ended June 30, 2016.

Summary of Changes in Net Position Year Ended June 30, 2016

GovernmentalActivities

RevenuesGeneral revenue:

Intergovernmental 153,191,248$ Use of money 4,266,033

Total revenues 157,457,281

ExpensesGeneral and administrative 725,416 Investment fees 578,230 Project cost distributions 32,727,649

Total expenses 34,031,295

Change in net position 123,425,986

Net Position, beginning 315,274,954

Net Position, ending 438,700,940$

For the fiscal year ended June 30, 2016, revenues totaled approximately $157.5 million. Expenses totaled approximately $34 million. A discussion of the key components of the revenue and expense is included in the funds analysis. FINANCIAL ANALYSIS OF THE REPORTING ENTITY’S FUNDS Governmental Funds As noted earlier, the Commission uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The focus of the Commission governmental funds is to provide information on near-term inflows, outflows, and balance of spendable resources. Such information is useful in assessing the needs of the Commission’s financing requirements. General Fund. The General Fund is the operating fund of the Commission. It is currently funded by transfers of investment earnings with any additional costs covered from the Special Revenue fund per legislative action HB1111. Any investment income not required for General Fund use is retained in the Special Revenue fund. Special Revenue Fund. The Commission established a special revenue fund during fiscal year 2016 which is categorized as a major fund in the governmental fund statements. This fund is used to report the intergovernmental revenue received from the Commonwealth of Virginia.

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Economic Factors and the Fiscal Year 2017 Budget

Hampton Roads is both a nationally and globally significant region. It is categorized as having a broad, diverse and stable regional economy. The region is the driver of economic activity for the Commonwealth of Virginia.

The fiscal year 2017 budget is based on an analysis of trending revenues.

The Commission’s General Fund operating budget will decrease from $2,966,732 in fiscal year 2016 to $2,400,000 in fiscal year 2017. This decrease is a result of efficiencies in operations after the initial start-up year.

REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the Commission’s finances for all those interested. If you have any questions about this report or need additional financial information, contact Kevin Page, Executive Director, Hampton Roads Transportation Accountability Commission, 723 Woodlake Drive, Chesapeake, Virginia, 23320, or by e-mail to [email protected].

FINANCIAL STATEMENTS

HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION STATEMENT OF NET POSITION June 30, 2016

See Notes to Financial Statements. 10

GovernmentalActivities

ASSETS

Cash and cash equivalents 943,350$ Due from the Commonwealth of Virginia 19,103,444 Prepaid items 4,776 Restricted cash, cash equivalents and investments 451,645,099

Total assets 471,696,669

DEFERRED OUTFLOWS OF RESOURCES

Pension plan 15,700

Total deferred outflows of resources 15,700

LIABILITIES

Accounts payable 104,337 Accrued liabilities 178 Due to other governments 32,906,914

Total liabilities 33,011,429

NET POSITION

Restricted 438,685,240 Unrestricted 15,700

Total net position 438,700,940$

HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION STATEMENT OF ACTIVITIES Year Ended June 30, 2016


Net (Expense) Revenue and

Change inNet Position

GovernmentalExpenses Activities

Functions/ProgramsGovernmental activities:

General and administrative 725,416$ (725,416)$ Investment fees 578,230 (578,230) Project cost distributions 32,727,649 (32,727,649)

Total governmental activities 34,031,295$ (34,031,295)

General revenuesIntergovernmental revenue:

Motor fuels tax 26,654,473 Sales and use tax 126,536,775

Use of money 4,266,033 Total general revenues 157,457,281

Change in net position 123,425,986

Net Position, beginning of year 315,274,954

Net Position, end of year 438,700,940$

HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION BALANCE SHEET – GOVERNMENTAL FUNDS AND RECONCILIATION OF THE BALANCE SHEET OF THE GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION June 30, 2016


Special TotalGeneral Revenue Governmental

Fund Fund Funds

ASSETS

Cash and cash equivalents -$ 943,350$ 943,350$ Due from the Commonwealth of Virginia - 19,103,444 19,103,444 Prepaid items 4,776 - 4,776 Due from Special Revenue Fund 68,344 - 68,344 Restricted cash, cash equivalents and investments - 451,645,099 451,645,099

Total assets 73,120$ 471,691,893$ 471,765,013$

LIABILITIES

Accounts payable 46,397$ 57,940$ 104,337$ Accrued liabilities 178 - 178 Due to General Fund - 68,344 68,344 Due to other governments 26,545 32,880,369 32,906,914

Total liabilities 73,120 33,006,653 33,079,773

FUND BALANCES

Nonspendable 4,776 - 4,776 Restricted - 438,685,240 438,685,240 Unassigned (4,776) - (4,776)

Total fund balances - 438,685,240 438,685,240

Total liabilities and fund balances 73,120$ 471,691,893$ 471,765,013$

Reconciliation of fund balance on the Balance Sheet for the governmental fundsto the net position of the governmental activities on the Statement of Net Position:

Fund balance - governmental funds 438,685,240$

Amounts reported for governmental activities in the Statement of Net Position are different because:

Deferred outflows of resources represent a consumption of net position thatapplies to a future period and, therefore, are not recognized as expenditures in the governmental funds until then. 15,700

Net position - governmental activities 438,700,940$

HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES – GOVERNMENTAL FUNDS AND RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES – GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Year Ended June 30, 2016


Special TotalGeneral Revenue Governmental

Fund Fund FundsRevenues

Intergovernmental:Motor fuels tax -$ 26,654,473$ 26,654,473$ Sales and use tax - 126,536,775 126,536,775

Use of money - 4,266,033 4,266,033 Total revenues - 157,457,281 157,457,281

ExpendituresCurrent:

General and administrative 741,116 - 741,116 Investment fees - 578,230 578,230 Project cost distributions - 32,727,649 32,727,649

Total expenditures 741,116 33,305,879 34,046,995

Excess (deficiency) of revenues over (under) expenditures (741,116) 124,151,402 123,410,286

Other Financing Sources (Uses)Transfers 741,116 (741,116) -

Total other financing sources (uses) 741,116 (741,116) -

Net change in fund balances - 123,410,286 123,410,286

Fund Balances, beginning of year - 315,274,954 315,274,954

Fund Balances, end of year -$ 438,685,240$ 438,685,240$

Amounts reported for governmental activities in the Statement of Activities aredifferent because:

Net changes in fund balances - governmental funds 123,410,286$

Some expenses reported in the Statement of Activities do not require the useof current financial resources and, therefore, are not reported as expendituresin governmental funds. 15,700

Change in net position of governmental activities 123,425,986$

HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION NOTES TO FINANCIAL STATEMENTS

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Note 1. Summary of Significant Accounting Policies The financial statements of the Hampton Roads Transportation Accountability Commission (“the Commission”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Governmental Accounting Standards Board (“GASB”) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). A. Reporting Entity The Commission is a political subdivision of the Commonwealth of Virginia, created in 2014 by House Bill 1253 (HB1253) and Senate Bill 513 (SB513). The Commission’s primary function is determining how the Hampton Roads Transportation Fund (HB2313 of the 2013 Acts of Assembly) regional sales tax and use tax and motor fuels tax monies will be invested in new construction projects on new or existing highways, bridges, and tunnels in the localities comprising Planning District 23. This function includes an improvement program development with priority to those projects that are expected to provide the greatest impact on reducing congestion for the greatest number of citizens residing within Planning District 23 and funding for regional transportation purposes in the Hampton Roads region. The member jurisdictions of the Commission are the counties of Isle of Wight, James City, Southampton, York, and the cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg. The Commission has 23 members as follows: the chief elected official, or their designee, of the 14 cities and counties that are members of the Commission; three members of the House of Delegates; two members of the Senate; and four non-voting ex-officio members from the Commonwealth Transportation Board, Virginia Department of Transportation, Virginia Department of Rail and Public Transportation, and Virginia Port Authority. All moneys received by the Commission are required to be used solely for determining transportation purposes benefiting the member jurisdictions, as outlined above. B. Government-wide and Fund Financial Statements The government-wide financial statements (Statement of Net Position and Statement of Activities) report information of the governmental activities supported by intergovernmental revenues. The government-wide Statement of Net Position reports net position as restricted when externally imposed constraints are in effect. Internally imposed designations of resources are not presented as restricted net position. The government-wide Statement of Activities is designed to report the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include contributions that are restricted to meet the operational requirements of a particular function.


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Note 1. Summary of Significant Accounting Policies (Continued) B. Government-wide and Fund Financial Statements (Continued) Separate fund financial statements are provided for each of the governmental funds. In the fund financial statements, financial transactions and accounts of the Commission are organized on the basis of funds. The operation of each fund is considered to be an independent fiscal and separate accounting entity, with a self-balancing set of accounts recording cash and/or other financial resources together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The governmental funds are reported on a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances (fund equity). Since the governmental fund statements are presented on a different measurement focus and basis of accounting than the government-wide statements, a reconciliation is presented which briefly explains the adjustment necessary to reconcile the fund financial statements to the government-wide financial statements. C. Measurement Focus and Basis of Accounting Government-wide Financial Statements – Government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Intergovernmental revenues, consisting of taxes from the Commonwealth of Virginia, are recognized in the period the funding is made available. Governmental Fund Financial Statements – The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. The Commission considers revenues to be available if they are collected within 45 days after year end. Expenditures are recorded when a liability is incurred under the full accrual method of accounting. The individual Government Funds are: General Fund - The General Fund is the primary operating fund of the Commission and is used to account for and report all revenues and expenditures applicable to the general operations of the Commission which are not accounted for in other funds. Revenues are derived primarily from transfers from the Special Revenue Fund. The General Fund is considered a major fund for financial reporting purposes. Special Revenue Fund – The Special Revenue Fund accounts for and reports the proceeds of specific revenue sources restricted or committed to expenditures for specified purposes. The Commission has one Special Revenue Fund. The Special Revenue Fund is considered a major fund for financial reporting purposes. D. Budgeting The Commission adopts an annual operating budget for the planning and administrative activities of the General Fund. The budgeting process enables the Commission to determine the annual transfer required from the Special Revenue Fund to fund its general and administrative activities. Accumulated fund balances in excess of anticipated minimum operating cash requirements are used as a revenue source in subsequent budgets.


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Note 1. Summary of Significant Accounting Policies (Continued) E. Other Significant Accounting Policies 1. Cash and Cash Equivalents

Cash equivalents include all highly liquid investments with maturities of three months or less.

2. Restricted Cash, Cash Equivalents and Investments

Restricted cash, cash equivalents and investments as reported in the Statement of Net Position are comprised of intergovernmental deposits that shall be used solely for regional highways, bridges and tunnel transportation projects benefiting the member jurisdictions.

3. Prepaid Items

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid expenses in the financial statements using the consumption method.

4. Capital Assets

Capital assets include property and equipment and computer hardware with an individual cost of more than $5,000 and an estimated useful life in excess of one year. For constructed assets, all costs necessary to bring assets to the condition and location necessary for the intended use are capitalized. Repairs and maintenance are charged to operations as incurred. Additions and betterments are capitalized. The cost of assets retired and accumulated depreciation are removed from the accounts.

Depreciation and amortization of all exhaustible equipment, leasehold improvements and intangibles is charged as an expense against operations using the straight-line method over the following estimated useful lives:

Asset Category Useful Life (years) Office Furniture and Equipment 5 Automobiles 5

When, in the opinion of management, certain assets are impaired, any estimated decline in value is accounted for as a non-operating expense. There were no impaired assets as of June 30, 2016.

Funding of transportation capital projects: For projects approved and funded by the Commission, the Commission does not take ownership of such projects. Therefore, these projects are not reflected on the Commission’s financial statements.

5. Pensions

For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Commission’s retirement plan and the additions to/deductions from the Commission’s retirement plan’s net fiduciary position have been determined on the same basis as they were reported by the Virginia Retirement System (VRS). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.


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Note 1. Summary of Significant Accounting Policies (Continued) E. Other Significant Accounting Policies (Continued)

6. Compensated Absences

The Commission’s policy permits employees to accumulate earned but unused vacation benefits, which are eligible for payment upon separation from the Commission’s service up to twice the annual earnings. The liability for such leave is reported as incurred in the government-wide statements. Vacation leave for Commission employees is granted to all full-time employees and is earned based upon the length of employment. The General Fund is responsible for paying the liability for compensated balances for employees. The Commission has elected not to record an adjustment for compensated balances for fiscal year 2016.

Accumulated sick leave accrues until employees leave the Commission and will be paid out at 25% of the balance, up to limits established by policy, reflective of years employed.

7. Inter-fund Transactions Transactions among Commission funds would be treated as revenues and expenditures or expenses if they involved organizations external to the Commission government are accounted for as revenues and expenditures or expenses in the funds involved. Transactions, which constitute reimbursements to a fund for expenditures initially made from it, which are properly applicable to another fund, are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the reimbursed fund. Transactions, which constitute the transfer of resources from a fund receiving revenues to a fund through which the revenues are to be expended, are separately reported in the respective funds’ operating statements.

8. Fund Equity

The Commission reports fund balance in accordance with GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The following classifications describe the relative strength of the spending constraints placed on the purposes for which resources can be used: Nonspendable fund balance classification includes amounts that are not in spendable form (such as prepaid items) or are required to be maintained intact (corpus of a permanent fund). Restricted fund balance classification includes amounts constrained to specific purposes by their providers (higher levels of government), through constitutional provisions, or by enabling legislation. Committed fund balance classification includes amounts constrained to specific purposes by the government itself, using its highest level of decision-making authority; to be reported as committed, amounts cannot be used for any other purpose unless the government takes the same highest level action to remove or change the constraint. Assigned fund balance classification includes amounts a government intends to use for a specific purpose; intent can be expressed by the governing body or by an official body to which the governing body delegates the authority.


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Note 1. Summary of Significant Accounting Policies (Continued)

E. Other Significant Accounting Policies (Continued)

8. Fund Equity (Continued) Unassigned fund balance classification includes the residual balance of the General Fund that has not been restricted, committed or assigned to specific purposes within the General Fund.

When fund balance resources are available for a specific purpose in more than one classification, the Commission will consider the use of restricted, committed or assigned funds prior to the use of unassigned fund balance as they are needed.

9. Net Position

Net position represents the difference between assets, deferred outflows, liabilities, and deferred inflows. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the Commission or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The Commission first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position are available.

10. Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

11. Deferred Outflows/Inflows of Resources

In addition to assets, the Statement of Net Position will report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expenditure) until then. The Commission currently has one item that qualifies for reporting in this category. In addition to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time The Commission currently has no items which arise under the modified accrual basis of accounting, that qualify for reporting in this category.

12. Subsequent Events

Subsequent events have been evaluated through September 7, 2016, which was the date the financial statements were available to be issued.


19

Note 2. Deposits and Investments At June 30, 2016, cash, cash equivalents, and investments consisted of the following, at cost, which approximates fair value: Governmental Activities

Cash

$ 943,350 Restricted

LGIP 47,987,627

Sterling Capital Management 322,873,251

BB&T Bank 9,208,848

Union Bank – Sweep Account 71,575,373

Total restricted 451,645,099

Total $ 452,588,449

Deposits Deposits with banks are covered by the Federal Deposit Insurance Corporation (FDIC) and collateralized in accordance with the Virginia Security for Public Deposits Act, Section 2.2-4400 et. Seq. of the Code of Virginia. Under the Act, banks and savings institutions holding public deposits in excess of the amount insured by the FDIC must pledge collateral to the Commonwealth of Virginia Treasury Board. Financial institutions may choose between two collateralization methodologies and depending upon that choice, will pledge collateral that ranges in the amounts from 50% to 130% of excess deposits. Accordingly, all deposits are considered fully collateralized. Investments Statutes authorize local governments and other public bodies to invest in obligations of the United States or its agencies thereof, obligations of the Commonwealth of Virginia or political subdivisions thereof, obligations of the International Bank for Reconstruction and Development (World Bank), the Asian Development Bank, the African Development Bank, “prime quality” commercial paper and certain corporate notes; bankers’ acceptances, repurchase agreements and the State Treasurer’s Local Government Investment Pool (LGIP). The Commission has adopted a formal investment policy. The goal of the policy is to minimize risk and to ensure the availability of cash to meet Commission expenditures, while generating revenue from the use of funds which might otherwise remain idle. The primary objectives of the Commission’s investment activities in priority order are: safety, liquidity and yield. The policy specifies eligible and ineligible investments; diversification requirements; maximum length of time for various types of investments; and the process for purchasing securities.


20

Note 2. Deposits and Investments (Continued) Investment Policy

Investment Credit Quality U.S. Treasury Obligations Bills, notes and any other obligation or securities issued by or

backed by the full faith and credit of the United States Treasury. The final maturity shall not exceed a period of three years from the time of purchase.

Federal Agency/Government Sponsored Enterprise Obligations

Bonds, notes and other obligations of the United States, and securities issued by any federal government agency or instrumentality or government sponsored enterprise except for Collateralized Mortgage Obligations, with a rating of at least “AA” (or its equivalent) by at least two NRSROs, one of which will be either Moody’s Investors Services, Inc. (“Moody’s”), or Standard & Poor’s, Inc. (“S&P”). The final maturity shall not exceed a period of three years from the time of purchase.

Municipal Obligations Bonds, notes and other general obligations of the

Commonwealth of Virginia and its agencies, authorities, and political subdivisions upon which there is no default, has a rating of at least “AA” by S&P and “Aa” by Moody’s, matures within three years of the date of purchase, and otherwise meets the requirements of Code of Virginia §2.2-4501.

Commercial Paper “Prime quality” commercial paper, with a maturity of 270 days or less, issued by domestic corporations (corporations organized and operating under the laws of the United States or any state thereof) provided that the issuing corporation, or its guarantor, has a short-term debt rating of at least two of the following: P-1 by Moody's, A-1 by S&P, F-1 by Fitch Investor's Services, Inc., and D-1 by Duff and Phelps, Inc., and that otherwise meets the requirements of Code of Virginia §2.2-4502.

Bankers’ Acceptance Issued by domestic banks or a federally chartered office of a foreign bank, which are eligible for purchase by the Federal Reserve System with a maturity of 180 days or less. The issuing corporation, or its guarantor, must have a short-term debt rating of no less than “A-1” by S&P and “P-1” by Moody’s.

Corporate Notes High quality corporate notes with a rating of at least “AA” by

S&P and “Aa” by Moody’s. The final maturity shall not exceed a period of three years from the time of purchase.


21

Note 2. Deposits and Investments (Continued) Investment Policy (Continued)

Investment Credit Quality Negotiable Certificates of Deposit and Bank Deposit Notes

Negotiable certificates of deposit and negotiable bank deposit notes of domestic banks and domestic offices of foreign banks with a rating of at least “A-1” by S&P and “P-1” by Moody’s for maturities of one year or less, and a rating of at least “AA” by S&P and “Aa” by Moody’s, for maturities over one year. The final maturity may not exceed a period of three years from the time of purchase.

Non-Negotiable Certificates of Deposit

Demand deposits, time deposits, and other deposits that comply with all aspects of SPDA or with §2.2-4518 with a final maturity no greater than two years.

Repurchase Agreement In overnight repurchase agreements provided that the following conditions are met: a. the contract is fully secured by deliverable U.S. Treasury

and Federal Agency/Government Sponsored Enterprise obligations as described in paragraphs 1 and 2 above, including the maximum maturity of three years, having a market value at all times of at least one hundred and two percent (102%) of the amount of the contract;

b. a Master Repurchase Agreement or specific written Repurchase Agreement governs the transaction;

c. the securities are free and clear of any lien and held by an independent third party custodian acting solely as agent for the Commission, provided such third party is not the seller under the repurchase agreement;

d. a perfected first security interest under the Uniform Commercial Code in accordance with book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the Commission;

e. the counterparty is a: i. primary government securities dealer who reports daily

to the Federal Reserve Bank of New York, or ii. a bank, savings and loan association, or diversified

securities broker-dealer having at least $5 billion in assets and $500 million in capital and subject to regulation of capital standards by any state or federal regulatory agency; and

f. the counterparty meets the following criteria: i. a long-term credit rating of at least ‘AA’ or the

equivalent from an NRSRO. ii. has been in operation for at least 5 years, and

iii. is reputable among market participants.


22

Note 2. Deposits and Investments (Continued) Investment Policy (Continued)

Investment Credit Quality Money Market Mutual Funds (Open-Ended Investment Funds)

Shares in open-end, no-load investment funds provided such funds are registered under the Investment Company Act of 1940 and provided that the fund is rated at least “AAAm” or the equivalent by an NRSRO. The mutual fund must comply with all requirements of Rule 2(a)-7, or any successor rule, of the United States Securities and Exchange Commission, provided the investments by such funds are restricted to investments otherwise permitted by the Code of Virginia for political sub-divisions.

Local Government Investment Pool (LGIP)

A specialized commingled investment program that operates in compliance with Governmental Accounting Standards Board’s Statement 79 (“GASB 79) that was created in the 1980 session of the General Assembly (Code of Virginia §2.2-4700 et seq.) designed to offer a convenient and cost-effective investment vehicle for public funds. The LGIP is administered by the Treasury Board of the Commonwealth of Virginia and is rated AAAm by S&P.

Virginia Investment Pool (VIP) A commingled investment program organized as a local government investment pool with oversight provided by a shareholder elected board of trustees. VIP is designed for the investment of longer-term monies that are not necessary for near term disbursement. VIP has a bond fund rating from S&P of AAf/S1.

Virginia State Non-Arbitrage Program’s (Virginia SNAP) SNAP Fund

A specialized commingled investment program that operates in compliance with GASB 79 and that was authorized by the Government Non-Arbitrage Act in 1989 (Code of Virginia §2.2-4700 et seq.). Virginia SNAP and the SNAP Fund are administered by the Treasury Board of the Commonwealth of Virginia. Virginia SNAP offers several investment options, including the SNAP Fund, and arbitrage rebate reporting services that are specifically designed for the investment of tax exempt bond proceeds.


23

Note 2. Deposits and Investments (Continued) Credit Risk The investment policy specifies credit quality for certain types of investments, as described below, in accordance with the Code of Virginia, and the policy specifies the qualifications for institutions providing depository and investment services. In addition, the Executive Director must conduct a review of the condition of each authorized financial institution and broker/dealer. As required by state statute, the Policy requires that commercial paper have a short-term debt rating of no less than “A-1” (or its equivalent) from at least two of the following; Moody’s Investors Service, Standard & Poor’s and Fitch Investor’s Service. Corporate notes, negotiable Certificates of Deposit and bank deposit notes maturing in less than one year must have a short-term debt rating of at least “A-1” by Standard & Poor’s and “P-1” by Moody’s. Notes having a maturity of greater than one year must be rated “AA” by S&P or “Aa” by Moody’s. As of June 30, 2016, 97% of the portfolio was invested in “AA+” U. S. Agency Securities, 2% was invested in “AAA” U. S. Agency Securities, and 1% was invested in “AA” U. S. Agency Securities. All credit ratings presented in this paragraph are S&P ratings. Custodial Credit Risk For deposits, custodial credit risk is the risk that in the event of a failure of a depository financial institution, deposits may not be recovered. All cash of the Commission is maintained in accounts collateralized in accordance with the Virginia Security for Public Deposits Act, Section 2.2-4400 et. seq. of the Code of Virginia or covered by federal depository insurance. Under the Act, banks holding public deposits in excess of the amounts insured by FDIC must pledge collateral in the amount of 50% of excess deposits to a collateral pool in the name of the State Treasury Board. If any member bank fails, the entire collateral pool becomes available to satisfy the claims of governmental entities. With the ability to make additional assessments, the multiple bank collateral pool functions similarly to depository insurance. The Commonwealth of Virginia Treasury Board is responsible for monitoring compliance with the collateralization and reporting requirements of the Act. Concentration of Credit Risk Concentration of credit risk is defined as the risk of loss attributed to the magnitude of a government’s investment in a single issuer. If certain investments in any one issuer represent 5% of total investments, there must be a disclosure of the amount and issuer. At June 30, 2016, the portion of the Commission’s portfolio, excluding the LGIP and money market mutual funds, that exceed 5% of the total portfolio are as follows:

United States Treasury Note 48% Federal National Mortgage Association 27% Federal Home Loan Mortgage Corp 6% Federal Home Loan Bank 9% Corporate Bonds 5%


24

Note 2. Deposits and Investments (Continued) Interest Rate Risk In accordance with its investment policy, the Commission manages its exposure to declines in fair values by limiting the maturity of various investment vehicles, as indicated in the chart below. The limitations provided in the investment policy for maximum maturity and percentage of the portfolio for each category of investment are as follows: Permitted Investment Sector Limit Issuer Limit U. S. Treasury Obligations 100% 100% Federal Agency/GSE Obligations 100% 35% Municipal Obligations 15% 5% Commercial Paper 35% 5% Bankers’ Acceptances 35% 5% Corporate Notes 15% 5% Negotiable Certificates of Deposit and Bank Deposit Notes

15%

5%

Bank Deposits and Non-Negotiable Certificates of Deposit

100%

100%

Repurchase Agreements 25% 25% Money Market Mutual Funds 25% 25% LGIP 100% 100% VIP 25% 25% Virginia SNAP-SNAP Fund (Proceeds of Tax Exempt Bonds Only)

100%

100%

As a means of limiting exposure to fair value losses arising from interest rates, the Commission’s policy limits investments to investments with a duration and/or weighted average maturity of the total investment portfolio shall not exceed two years. Investment Maturities (in years) Fair Less Than 1-5 Value 1 Year Years

United States Treasury Notes $ 153,205,334 $ 10,042,197 $ 143,163,137 Union Bank – Sweep Account 71,575,373 71,575,373 - Government Agency (State Taxable) 106,814,397 - 106,814,397 Government Agency (State Exempt) 45,130,729 18,775,864 26,354,865 Corporate Bonds 17,662,729 - 17,662,729 LGIP 47,987,627 47,987,627 - Money Market 60,062 60,062 -


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Note 2. Deposits and Investments (Continued) Interest Rate Risk (Continued) As of June 30, 2016, the Commission had investments of $47,987,627 in the LGIP for governmental activities. The LGIP is a professionally managed money market fund which invests in qualifying obligations and securities as permitted by Virginia statutes. Pursuant to Section 2.2-4605 Code of Virginia, the Treasury Board of the Commonwealth sponsors the LGIP and has delegated certain functions to the State Treasurer. The LGIP reports to the Treasury Board at their regularly scheduled monthly meetings. The fair value of the position of the LGIP is the same as the value of the pool shares, i.e., the LGIP maintains a stable net asset value of $1 per share. The LGIP has been assigned an “AAAm” rating by Standard & Poor’s. Interest rate risk does not apply to the LGIP pool since it is a 2a7-like pool. Note 3. Fair Value Measurement The Commission categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. The three levels of the fair value hierarchy are described below.

Level 1 Valuation based on quoted prices in active markets for identical assets or liabilities.

Level 2 Valuation based on quoted prices for similar assets or liabilities, quoted prices in

markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets and liabilities.

Level 3 Valuations based on unobservable inputs to the valuation methodology that are

significant to the measurement of the fair value of assets or liabilities. June 30, 2016 Level 1 Level 2 Level 3 Investments by Fair Value Level

United States Treasury Note $ 153,205,334 $ 153,205,334 $ - $ - Government Agency (State Taxable)

106,814,397

106,814,397

-

-

Government Agency (State Exempt)

45,130,729

45,130,729

-

-

Corporate Bonds 17,662,729 17,662,729 - - LGIP 47,987,627 47,987,627 - - Union Bank – Sweep Account 71,575,373 - 71,575,373 - Money Market 60,062 60,062 - -


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Note 4. Due To/From Other Governments At June 30, 2016, due from the Commonwealth of Virginia consisted of the following:

Special Revenue

Fund Sales and Use Tax $ 17,000,734 Motor Fuels Tax 2,086,824 Interest 15,886

Total $ 19,103,444

Due to Other Governments General

Fund

Special Revenue

Fund Total Virginia Department of Transportation $ - $ 32,727,649 $ 32,727,649 Virginia Department of the Treasury - 152,720 152,720 Hampton Roads Planning District Commission 26,545 - 26,545

Total $ 26,545 $ 32,880,369 $ 32,906,914

Note 5. Intergovernmental Revenues, Commonwealth of Virginia Intergovernmental revenues from the Commonwealth of Virginia include additional fees or taxes imposed in each of the Member Jurisdictions as follows: An additional Retail Sales Tax of .7% is added to the standard rate of retail sales tax imposed by the Virginia Code. The additional tax is not levied upon food purchased for human consumption. An additional Motor Fuels Tax at a rate of 2.1% on retail sales of motor vehicle fuel levied by the Commonwealth of Virginia through its Department of Motor Vehicles.


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Note 6. Pension Plan A. Plan Description

Name of Plan: Virginia Retirement System (VRS)

Identification of Plan: Agent Multiple-Employer Pension Plan

Administering Entity: Virginia Retirement System (System)

All full-time, salaried permanent employees of the Commission are automatically covered by VRS Retirement Plan upon employment. This plan is administered by the Virginia Retirement System (the System) along with plans for other employer groups in the Commonwealth of Virginia. Members earn one month of service credit for each month they are employed and for which they and their employer pay contributions to VRS. Members are eligible to purchase prior service, based on specific criteria as defined in the Code of Virginia, as amended. Eligible prior service that may be purchased includes prior public service, active military service, certain periods of leave, and previously refunded service. The Commission is a new entity and has not been included in the actuarial calculations with VRS for the current year.

The System administers three different benefit structures for covered employees – Plan 1, Plan 2, and

Hybrid. Each of these benefit structures has a different eligibility criteria. The specific information for each plan and the eligibility for covered groups within each plan are set out in the table below:

Hybrid

Plan 1 Plan 2 Retirement Plan About Plan 1 Plan 1 is a defined benefit plan. The retirement benefit is based on a member’s age, creditable service and average final compensation at retirement using a formula. Employees are eligible for Plan 1 if their membership date is before July 1, 2010, and they were vested as of January 1, 2013.

About Plan 2 Plan 2 is a defined plan. The retirement benefit is based on a member’s age, creditable service and average final compensation at retirement using a formula. Employees are eligible for Plan 2 if their membership date is on or after July 1, 2010 or their membership date is before July 1, 2010, and they were not vested as of January 1, 2013.

About the Hybrid Retirement Plan The Hybrid Retirement Plan combines the features of a defined benefit plan and a defined contribution plan. Most members hired on or after January 1, 2014 are in this plan, as well as Plan 1 and Plan 2 members who were eligible and opted into the plan during a special election window. (See “Eligible Members”) • The defined benefit is based

on a member’s age, creditable service and average final compensation at retirement using a formula.

• The benefit from the defined contribution component of the plan depends on the member and employer contributions made to the plan and the investment performance of those contributions.


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Note 6. Pension Plan (Continued) A. Plan Description (Continued)

Hybrid Plan 1 Plan 2 Retirement Plan

About the Hybrid Retirement Plan (Continued) • In addition to the monthly

benefit payment payable from the defined benefit plan at retirement, a member may start receiving distributions from the balance in the defined contribution account, reflecting the contributions, investment gains or losses, and any required fees.

Eligible Members Employees are in Plan 1 if their membership date is before July 1, 2010, and they were vested as of January 1, 2013. Hybrid Opt-In Election VRS non-hazardous duty covered Plan 1 members were allowed to make an irrevocable decision to opt into the Hybrid Retirement Plan during a special election window held January 1 through April 30, 2014. The Hybrid Retirement Plan’s effective date for eligible Plan 1 members who opted in was July 1, 2014. If eligible deferred members returned to work during the election window, they were also eligible to opt into the Hybrid Retirement Plan. Members who were eligible for an optional retirement plan (ORP) and had prior service under Plan 1 were not eligible to elect the Hybrid Retirement Plan and remain as Plan 1 or ORP.

Eligible Members Employees are in Plan 2 if their membership date is on or after July 1, 2010, or their membership date is before July 1, 2010, and they were not vested as of January 1, 2013. Hybrid Opt-In Election Eligible Plan 2 members were allowed to make an irrevocable decision to opt into the Hybrid Retirement Plan during a special election window held January 1 through April 30, 2014. The Hybrid Retirement Plan’s effective date for eligible Plan 2 members who opted in was July 1, 2014. If eligible deferred members returned to work during the election window, they were also eligible to opt into the Hybrid Retirement Plan. Members who were eligible for an optional retirement plan (ORP) and have prior service under Plan 2 were not eligible to elect the Hybrid Retirement Plan and remain as Plan 2 or ORP.

Eligible Members Employees are in the Hybrid Retirement Plan if their membership date is on or after January 1, 2014. This includes: • Political

subdivision employees.* • Members in Plan 1

or Plan 2 who elect to opt into the plan during the election window held January 1 – April 30, 2014; in the plan’s effective date for opt-in members was July 1, 2014.

* Non-Eligible Members

Some employees are not eligible to participate in the Hybrid Retirement Plan. They include: • Political

subdivision employees who are covered by enhanced benefits for hazardous duty employees.

Those employees eligible for an optional retirement plan (ORP) must elect the ORP plan or the Hybrid Retirement Plan. If these members have prior service under Plan 1 or Plan 2, they are not eligible to elect the Hybrid Retirement Plan and must select Plan 1 or Plan 2 (as applicable) or ORP.


29



Retirement Contributions Employees contribute 5% of their compensation each month to their member contribution account through a pre-tax salary reduction. Some political subdivisions elected to phase in the required 5% member contribution; all employees will be paying the full 5% by July 1, 2016. Member contributions are tax-deferred until they are withdrawn as part of a retirement benefit or as a refund. The employer makes a separate actuarially determined contribution to VRS for all covered employees. VRS invests both member and employer contributions to provide funding for the future benefit payment.

Retirement Contributions Employees contribute 5% of their compensation each month to their member contribution account through a pre-tax salary reduction. Some political subdivisions elected to phase in the required 5% member contribution; all employees will be paying the full 5% by July 1, 2016.

Retirement Contributions A member’s retirement benefit is funded through mandatory and voluntary contributions made by the member and the employer to both the defined benefit and the defined contribution components of the plan. Mandatory contributions are based on a percentage of the employee’s creditable compensation and are required from both the member and the employer. Additionally, members may choose to make voluntary contributions to the defined contribution component of the plan, and the employer is required to match those voluntary contributions according to specified percentages.

Creditable Service Creditable service includes active service. Members earn creditable service for each month they are employed in a covered position. It also may include credit for prior service the member has purchased or additional creditable service the member was granted. A member’s total creditable service is one of the factors used to determine their eligibility for retirement and to calculate their retirement benefit. It also may count toward eligibility for the health insurance credit in retirement, if the employer offers the health insurance credit.

Creditable Service Same as Plan 1.

Creditable Service Defined Benefit Component Under the defined benefit component of the plan, creditable service includes active service. Members earn creditable service for each month they are employed in a covered position. It also may include credit for prior service the member has purchased or additional creditable service the member was granted. A member’s total creditable service is one of the factors used to determine their eligibility for retirement and to calculate their retirement benefit. It also may count toward eligibility for the health insurance credit in retirement, if the employer offers the health insurance credit. Defined Contribution Component Under the defined contribution component, creditable service is used to determine vesting for the employer contribution portion of the plan.


30



Vesting Vesting is the minimum length of service a member needs to qualify for a future retirement benefit. Members become vested when they have at least five years (60 months) of creditable service. Vesting means members are eligible to qualify for retirement if they meet the age and service requirements for their plan. Members also must be vested to receive a full refund of their member contribution account balance if they leave employment and request a refund. Members are always 100% vested in the contributions they make.

Vesting Same as Plan 1.

Vesting Defined Benefit Component Defined benefit vesting is the minimum length of service a member needs to qualify for a future retirement benefit. Members are vested under the defined benefit component of the Hybrid Retirement Plan when they reach five years (60 months) of creditable service. Plan 1 or Plan 2 members with at least five years (60 months) of creditable service who opted into the Hybrid Retirement Plan remain vested in the defined benefit component. Defined Contribution Component Defined contribution vesting refers to the minimum length of service a member needs to be eligible to withdraw the employer contributions from the defined contribution component of the plan. Members are always 100% vested in the contributions they make. Upon retirement or leaving covered employment, a member is eligible to withdraw a percentage of employer contributions to the defined contribution component of the plan, based on service.


31



Vesting (Continued)

Defined Contribution Component (Continued) • After two years, a member

is 50% vested and may withdraw 50% of employer contributions.

• After three years, a member is 75% vested and may withdraw 75% of employer contributions.

• After four or more years, a member is 100% vested and may withdraw 100% of employer contributions.

Distribution is not required by law until age 70 1/2.

Calculating the Benefit Calculating the Benefit Calculating the Benefit The Basic Benefit is calculated based on a formula using the member’s average final compensation, a retirement multiplier and total service credit at retirement. It is one of the benefit payout options available to a member at retirement. An early retirement reduction factor is applied to the Basic Benefit if the member retires with a reduced retirement benefit or selects a benefit payout option other than the Basic Benefit.

See definition under Plan 1. Defined Benefit Component See definition under Plan 1. Defined Contribution Component The benefit is based on contributions made by the member and any matching contributions made by the employer, plus net investment earnings on those contributions.

Average Final Compensation A member’s average final compensation is the average of the 36 consecutive months of highest compensation as a covered employee.

Average Final Compensation A member’s average final compensation is the average of their 60 consecutive months of highest compensation as a covered employee.

Average Final Compensation Same as Plan 2. It is used in the retirement formula for the defined benefit component of the plan.


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Service Retirement Multiplier Service Retirement Multiplier Service Retirement Multiplier The retirement multiplier is a factor used in the formula to determine a final retirement benefit. The retirement multiplier for non-hazardous duty members is 1.7%.

Same as Plan 1 for service earned, purchased or granted prior to January 1, 2013. For non-hazardous duty members, the retirement multiplier is 1.65% for creditable service earned, purchased or granted on or after January 1, 2013.

The retirement multiplier for the defined benefit component is 1.0%. For members that opted into the Hybrid Retirement Plan from Plan 1 or Plan 2, the applicable multipliers for those plans will be used to calculate the retirement benefit for service credited in those plans.

Normal Retirement Age Age 65.

Normal Retirement Age Normal Social Security retirement age.

Normal Retirement Age

Defined Benefit Component

Same as Plan 2.

Defined Contribution Component

Members are eligible to receive distributions upon leaving employment, subject to restrictions.

Earliest Unreduced Retirement Eligibility Age 65 with at least five years (60 months) of creditable service or at age 50 with at least 30 years of creditable service.

Earliest Unreduced Retirement Eligibility Normal Social Security retirement age with at least 5 years (60 months) of creditable service or when their age and service equal 90.

Earliest Unreduced Retirement Eligibility Defined Benefit Component

Normal Social Security retirement age and have at least 5 years (60 months) of creditable service or when their age and service equal 90. Defined Contribution Component

Members are eligible to receive distributions upon leaving employment, subject to restrictions.


33



Earliest Reduced Retirement Eligibility Age 55 with at least five years (60 months) of creditable service or age 50 with at least 10 years of creditable service.

Earliest Reduced Retirement Eligibility Age 60 with at least five years (60 months) of creditable service.

Earliest Reduced Retirement Eligibility Defined Benefit Component Members may retire with a reduced benefit as early as age 60 with at least five years (60 months) of creditable service. Defined Contribution Component Members are eligible to receive distributions upon leaving employment, subject to restrictions.

Cost-of-Living Adjustment (COLA) in Retirement The Cost-of-Living Adjustment (COLA) matches the first 3% increase in the Consumer Price Index for all Urban Consumers (CPI-U) and half of any additional increase (up to 4%) up to a maximum COLA of 5%. Eligibility: For members who retire with an unreduced benefit or with a reduced benefit with at least 20 years of creditable service, the COLA will go into effect on July 1 after one full calendar year from the retirement date. For members who retire with a reduced benefit and who have less than 20 years of creditable service, the COLA will go into effect on July 1 after one calendar year following the unreduced retirement eligibility date.

Cost-of-Living Adjustment (COLA) in Retirement The Cost-of-Living Adjustment (COLA) matches the first 2% increase in the CPI-U and half of any additional increase (up to 2%) for a maximum COLA of 3%.

Eligibility: Same as Plan 1.

Cost-of-Living Adjustment (COLA) in Retirement Defined Benefit Component Same as Plan 2. Defined Contribution Component Not applicable. Eligibility: Same as Plan 1 and Plan 2.


34



Cost-of-Living Adjustment (COLA) in Retirement (Continued) Exceptions to COLA Effective Dates: The COLA is effective July 1 following one full calendar year (January 1 to December 31) under any of the following circumstances: • The member is within five

years of qualifying for an unreduced retirement benefit as of January 1, 2013.

• The member retires on disability.

• The member retires directly from short-term or long-term disability under the Virginia Sickness and Disability Program (VSDP).

• The member is involuntarily separated from employment for causes other than job performance or misconduct and is eligible to retire under the Workforce Transition Act or the Transitional Benefits Program.

• The member dies in service and the member’s survivor or beneficiary is eligible for a monthly death-in-service benefit. The COLA will go into effect on July 1 following one full calendar year (January 1 to December 31) from the date the monthly benefit begins.

Cost-of-Living Adjustment (COLA) in Retirement (Continued) Exceptions to COLA Effective Dates: Same as Plan 1.

Cost-of-Living Adjustment (COLA) in Retirement (Continued) Exceptions to COLA Effective Dates: Same as Plan 1 and Plan 2.


35



Disability Coverage Members who are eligible to be considered for disability retirement and retire on disability, the retirement multiplier is 1.7% on all service regardless of when it was earned, purchased or granted. VSDP members are subject to a one-year waiting period before becoming eligible for non-work related disability benefits.

Disability Coverage Members who are eligible to be considered for disability retirement and retire on disability, the retirement multiplier is 1.65% on all service regardless of when it was earned, purchased or granted. VSDP members are subject to a one-year waiting period before becoming eligible for non-work related disability benefits.

Disability Coverage Eligible political subdivisions (including Plan 1 and Plan 2 opt-ins) participate in the Virginia Local Disability Program (VLDP) unless their local governing body provides an employer-paid comparable program for its members. Hybrid members (including Plan 1 and Plan 2 opt-ins) covered under VLDP are subject to a one-year waiting period before becoming eligible for non-work related disability benefits.

Purchase of Prior Service



Members may be eligible to purchase service from previous public employment, active duty military service, an eligible period of leave or VRS refunded service as creditable service in their plan. Prior creditable service counts toward vesting, eligibility for retirement and the health insurance credit. Only active members are eligible to purchase prior service. When buying service, members must purchase their most recent period of service first. Members also may be eligible to purchase periods of leave without pay.

Same as Plan 1. Defined Benefit Component Same as Plan 1, with the following exceptions: • Hybrid Retirement Plan

members are ineligible for ported services.

• The cost for purchasing refunded service is the higher of 4% of creditable compensation or average final compensation.

• Plan members have one year from their date of hire or return from leave to purchase all but refunded prior service at approximate normal cost. After that one year period, the rate for most categories of service will change to actuarial cost.

Defined Contribution Component Not applicable.


36


VRS issues a publicly available CAFR that includes financial statements and required supplementary information for the plans which it administers. A copy of that report may be obtained by writing to Virginia Retirement System, P.O. Box 2500, Richmond, Virginia 23218-2500, or from their website at www.varetire.org.

B. Employees Covered by Benefit Terms

As of June 30, 2016, the following employees were covered by the benefit terms of the pension plan:

Active Members 2

C. Contributions The contribution requirement for active employees is governed by §51.1-145 of the Code of Virginia, as amended, but may be impacted as a result of funding options provided to political subdivisions by the Virginia General Assembly. Employees are required to contribute 5% of their compensation toward their retirement. Prior to July 1, 2012, all or part of the 5% member contribution may have been assumed by the employer. From the commencement of the Commission’s plan in August 2015, employees were required to pay the 5% member contribution. In addition, for existing employees, employers were required to begin making the employee pay the 5% member contribution. This could be phased in over a period of up to five years and the employer is required to provide a salary increase equal to the amount of the increase in the employee-paid member contribution. The Commission’s contractually required contribution rate for the year ended June 30, 2016 was 16.02% of covered employee compensation. This rate was based on an actuarially determined rate from an actuarial valuation. This rate, when combined with employee contributions, was expected to finance the costs of benefits earned by an employee during the year, with an additional amount to finance any unfunded accrued liability. Contributions to the pension plan from the Commission were $15,700 for the year ended June 30, 2016.


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Note 6. Pension Plan (Continued) D. Actuarial Assumptions

The total pension liability for the Commission’s retirement plan was based on an actuarial valuation using the Entry Age Normal actuarial cost method and the following assumptions, applied to all periods included in the measurement and rolled forward to the measurement date of June 30, 2014. Inflation 2.5 percent Salary increases, including inflation 3.5 percent – 5.35 percent Investment rate or return 7.0 percent, net of pension plan investment expense, including inflation*

* Administrative expenses as a percent of the market value of assets for the last experience study were found to be approximately 0.06% of the market assets for all of the VRS plans. This would provide an assumed investment return rate for GASB purposes of slightly more than the assumed 7.0%. However, since the difference was minimal, and a more conservative 7.0% investment return assumption provided a projected plan net position that exceeded the projected benefit payments, the long-term expected rate of return on investments was assumed to be 7.0% to simplify preparation of pension liabilities.

Mortality rates: 14% of deaths are assumed to be service related.

Pre-Retirement: RP-2000 Employee Mortality Table Projected with Scale AA to 2020 with males set

forward 4 years and females were set back two years.

Post-Retirement: RP-2000 Combined Mortality Table Projected with Scale AA to 2020 with males set

forward one year.

Post-Disablement: RP-2000 Disability Life Mortality Table Projected to 2020 with males set back three years

and no provision for future mortality improvement.


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Note 6. Pension Plan (Continued) E. Long-Term Expected Rate of Return

The long-term expected rate of return on pension System investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension System investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target asset allocation is best estimate of arithmetic real rates of return for each major asset class are summarized in the following table: Weighted Average Long-Term Target Expected Asset Class (Strategy) Allocation Rate of Return U.S. Equity 19.50% 1.26% Developed Non-U.S. Equity 16.50% 1.04% Emerging Market Equity 6.00% 0.60% Fixed Income 15.00% 0.01% Emerging Debt 3.00% 0.11% Rate Sensitive Credit 4.50% 0.16% Non-Rate Sensitive Credit 4.50% 0.23% Convertibles 3.00% 0.14% Public Real Estate 2.25% 0.14% Private Real Estate 12.75% 0.91% Private Equity 12.00% 1.25% Cash 1.00% -0.02%

Total 100.00% 5.83%

Inflation 2.50%

* Expected arithmetic nominal return 8.33%

* Using stochastic projection results provides an expected range of real rates of return over various time horizons. Looking at one year results produces an expected real return of 8.33% but also has a high standard deviation, which means there is high volatility. Over larger time horizons, the volatility declines significantly and provides a median return of 7.44%, including expected inflation of 2.50%.


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Note 6. Pension Plan (Continued) F. Discount Rate

The discount rate used to measure the total pension liability was 7.0%. The projection of cash flows used to determine the discount rate assumed that System member contributions will be made per the VRS statutes and the employer contributions will be made in accordance with the VRS funding policy at rates equal to the difference between actuarially determined contribution rates adopted by the VRS Board of Trustees and the member rate. Through the fiscal year ending June 30, 2018, the rate contributed by the employer for the Commission retirement plan will be subject to the portion of the VRS Board-certified rates that are funded by the Virginia General Assembly. From July 1, 2018 on, participating employers are assumed to contribute 100% of the actuarially determined contribution rates. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of the current active and inactive employees. Therefore, the long-term expected rate of return was applied to all periods of projected benefit payments to determine the total pension liability.

G. Deferred Outflows of Resources

At June 30, 2016, the Commission reported deferred outflows of resources related to pensions from the following source:

Deferred Outflows

of Resources Employer contributions subsequent to the measurement date $ 15,700

Note 7. Operating Leases and Agreements Governmental Activities The Commission leases office space under a 36-month agreement which commenced on November 9, 2015 and expires November 30, 2018. The lease provides an option to renew for two additional terms of one year at which time annual rent will be increased to an amount equal to 105% of the annual rent in effect. The current lease terms call for the Commission to pay $917 monthly ($11,008 annually). Rent expense for Governmental Activities as reported in the government-wide financial statements totaled $7,094. As of June 30, 2016, the minimum long-term lease commitments were as shown below:

Year Ending June 30, Amount 2017 $ 11,008 2018 11,008 2019 4,585

Total $ 26,601


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Note 8. Interfund Transfers Transfers from the Special Revenue Fund to the General Fund are for general administration. Note 9. Pending GASB Statements At June 30, 2016, the Governmental Accounting Standards Board (GASB) had issued statements not yet implemented by the Commission. The statements which might impact the Commission are as follows: GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, will improve accounting and financial reporting by state and local governments for OPEB. It will also require the recognition of the entire OPEB liability and a comprehensive measure of OPEB expense. Statement No. 75 will be effective for fiscal years beginning after June 15, 2017. GASB Statement No. 79, Certain External Investment Pools and Pool Participants, will improve the accounting and financial reporting for certain external investment pools and pool participants. It establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. Statement No. 79 will be effective for fiscal years beginning after June 15, 2015, except for certain provisions on portfolio quality, custodial credit risk, and shadow pricing. Those provisions are effective for reporting periods beginning after December 15, 2015. GASB Statement No. 82, Pension Issues- an Amendment of GASB Statements No. 67, No. 68, and No. 73, the objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. Statement No. 82 will be effective for reporting periods beginning after June 15, 2016 except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. Management has not yet determined the effect these statements will have on its financial statements.

REQUIRED SUPPLEMENTARY INFORMATION

HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE – BUDGET AND ACTUAL – GENERAL FUND Year Ended June 30, 2016

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Variancewith Final

Original Final Actual BudgetBudget Budget Amounts Over (Under)

ExpendituresGeneral and administrative 1,088,232$ 2,966,732$ 741,116$ (2,225,616)$

Total expenditures 1,088,232 2,966,732 741,116 (2,225,616)

Other Financing SourcesTransfers 1,088,232 2,966,732 741,116 (2,225,616)

Total other financing sources 1,088,232 2,966,732 741,116 (2,225,616)

Net change in fund balance - - - -

Fund Balance, beginning of year - - - -

Fund Balance, end of year -$ -$ -$ -$

Note: The Commission adopts an annual operating budget for the planning and administrative activities of the General Fund. The budgeting process enables the Commission to determine the annual transfer required from the Special Revenue Fund to fund its general and administrative activities. Accumulated fund balances in excess of anticipated minimum operating cash requirements are used as a revenue source in subsequent budgets.

SUPPLEMENTARY INFORMATION

HAMPTON ROADS TRANSPORTATION ACCOUNTABILITY COMMISSION SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENDITURES Year Ended June 30, 2016

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ExpendituresSalaries and wages 192,661$ Employee benefits 18,180 VRS Contributions 15,700 Support services - HRTPO/HRPDC 94,956 Office rent 7,094 Office furniture and equipment 15,864 Professional and legal 353,307 Travel and meeting 21,005 Insurance 2,813 Computer hardware 9,308 Public notice and advertising 9,344 Other 884

Total expenditures 741,116$

COMPLIANCE SECTION

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INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS

PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To the Honorable Commission Board Members Hampton Roads Transportation Accountability Commission Chesapeake, Virginia We have audited, in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; and the Specifications for Audits of Authorities, Boards and Commissions, issued by the Auditor of Public Accounts of the Commonwealth of Virginia, the financial statements of the governmental activities and each major fund of Hampton Roads Transportation Accountability Commission (Commission), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Commission’s basic financial statements, and have issued our report thereon dated September 7, 2016. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Commission’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Commission’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility a material misstatement of the Commission’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

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Compliance and Other Matters As part of obtaining reasonable assurance about whether the Commission’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, and contracts, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Commission’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Commission’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Harrisonburg, Virginia September 7, 2016

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